Canaccord slightly lowers target price on Genel Energy

Canaccord Genuity said Genel's trading update was "never likely to be a barnstormer" but admitted that it made it clear that the group's operational focus continued to be on investment into its Tawke licence in order to maximise cashflow from both it and Peshkabir fields.

The Canadian bank noted that inorganic expansion remained "the only obvious route to growth" following disappointing appraisal wells on its Sarta asset, the expiry of the Qara Dagh licence after inconclusive drilling, and the effective loss of its Miran/Bina Bawi licences and potential developments.

"The challenge, in our view, is that in 2023 cash generation looks set to be significantly lower than in 2022 as a result of sliding Tawke licence production, anticipated notably lower oil prices than in 2022, and no further benefits related to the Tawke override royalty which ended in August 2022," said Canaccord, which reiterated its 'speculative buy' rating on the stock.

"Consequently, we expect the balance sheet will look little different at YE23 compared to YE22. With anticipated expensive credit financing that would then require innovative acquisition terms to acquire the scale of assets the company would prefer, at the same time as high quality producing assets that are still likely to attract premium pricing."

Reporting by Iain Gilbert at Sharecast.com